Seminar on JESSICA and State Aid Brussels, 4 May 2011

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1 Seminar on JESSICA and State Aid Brussels, 4 May 2011JESSICA: using existing State aid provisions Eglé Striungyté and Christian Harringa DG Competition, European Commission** DISCLAIMER: The views expressed are purely those of the presenters and may not in any circumstances be regarded as an official position of the European Commission

3 Is State aid present? (1)Cumulative Art 107 (1) TFEU conditions to establish State aid presence:Support in whatever form provided by the State or through State resources to…selected economic activities (offering of goods or services on a specific market) carried out by any entities (pubic or private) conferring…an economic advantage, i. e. investments not in line with the market economy investor principle (MEIP), which could…distort competition and affect trade.Verifying MEIP-compliance to establish State aid presence:Loans - interest rates in line with the Reference Rate Communication (OJ C 14, );Guarantees - fees and conditions in line with the Guarantee Notice (OJ C 155, );Equity/quasi-equity - public-private investments on a pari passu basis (the Risk Capital Guidelines, OJ C );Services of General Economic Interest (SGEI) - see below.

4 Is State aid present? (2)De minimis aid (not qualifying as State aid):EUR 200,000 over any 3 fiscal year period (Regulation N. 1998/2006)Only transparent aid, i. e. a grant or a gross grant equivalent (GGE) of loans and guarantees (equity only if treated as a grant)Calculating a GGE of State aid (for de minimis and compatibility):Standard loans - the present value of the difference between the (market) interest rate (normally based on the Reference Rate Communication) and the interest rate actually charged;Guarantees - the present value of the difference between the (market) guarantee fee (normally based on the Guarantee Notice) and the guarantee fee actually charged;Equity/quasi-equity – considered not to be transparent aid and, therefore, normally the total investment amount is treated as a grant.

7 Regional Aid GuidelinesProject types:Multi-sectoral investment projects (SMEs and large companies)Standard assessment principles (schemes):Projects must be undertaken in the assisted areas of Art. 107(3)(a) or(c) TFEU covered by the regional aid map (if areas below the NUTS III level with min population covered by the regional map, SMEs may receive investments below EUR 25 million);Investment into new assets (initial investment, not replacement investment) and must be maintained for at least 5 years after completion;Aid intensities (a percentage of discounted eligible costs) – up to 50% for large enterprises, up to 60% for medium-sized and up to 70% for small enterprises;The recipient must contribute at least 25 per cent of the total eligible costs that are free of State aid .Individual notification (projects):Large investment projects above EUR 50 million or exceeding the RAG thresholds.

8 Environmental Aid GuidelinesProject types:Renewable energy, high efficiency cogeneration, energy saving, district heating installations (not heating infrastructure), waste management (treating waste generated by other polluters) and the remediation of contaminated sites (where the polluter is not known).Standard assessment principles (schemes):Eligible costs – only extra investment costs linked to environmental protection (compared to a reference conventional investment) net of operating costs and benefits (i. e. cost savings) arising during the first 3 to 5 years of the investment;Aid intensities may not exceed 60-80% for renewables, cogeneration and energy savings and 50-70% for waste management and district heating;For the remediation of contaminated sites, 100% aid intensity of the eligible costs (the costs of remediation, minus the increase value of the site).Individual notification (projects):Aid to a project exceeding EUR 7.5 million.

9 Broadband Guidelines Project types: Necessity criteria:Basic broadband and next generation access (NGA) networks.Necessity criteria:Areas with insufficient broadband coverage: “white” areas (simplified procedure) and “grey” areas (standard assessment), no credible private investment in the target area within 3 years.Core safeguards:Detailed mapping and coverage analysis, public consultation with existing operators;Open tender process selecting the most economically advantageous bid;Technological neutrality not to favour any technology or service provider;Use of existing infrastructure, wholesale access, benchmarking pricing, monitoring and claw-back.Additional safeguards (core safeguards plus for NGA networks):Access to passive (and not only active) infrastructure;National Regulatory Authorities shall be consulted;Network architecture should support effective and full unbundling and satisfy all different types of network access.

11 General Block Exemption RegulationGBER (OJ L 214, , p. 13): conditions for several aid measures to be exempt from obligation to notify.26 different settings (e.g. regional aid, investment aid, environmental aid or risk capital measures) for recipients, aid intensities and eligible costs.Aid has to meet transparency criterion in Article 5 GBER, i.e. primarily aid has to be comprised in grants, interest rate subsidies, certain kinds of loans, guarantees and capped fiscal measures.Equity/quasi-equity considered non-transparent, possible when total amount considered as grant.Investments into SMEs only when provided by a public/private fund with minimum 50% private participation (30% in assisted areas).

12 SGEI (1): The „Altmark Conditions“Under the following conditions, set by the Court (Judgment of 24 July 2003 Case C-280/00, European Court reports 2003 p. I-07747) , public compensation for the provision of SGEIS by an undertaking is free from State aid:The undertaking actually has public service obligations to discharge and these obligations are clearly defined.The parameters of the compensation are objective and established in advance.The compensation does not exceed the costs of the SGEI plus a reasonable profit and may not be used on other markets open to competition.The SGEI provider has been selected by a tendering procedureorCompensation for provision of SGEI has been calculated on the basis of the costs of a typical undertaking that is well run and adequately equipped (Efficiency test).

14 Test Case(s): Refurbishing the EU Quarter in Model TownIn order to demonstrate options for urban develop-ment projects in line with State aid rules, we use the following test case(s) both in assisted and non assisted areas:Construction of 200 apartments in a privately owned social housing project for EUR 50 million of which EUR 10 million are public grant funding.Building of 4,000 square meters of privately owned office space for EUR 8 million, EUR 6 million of which are public subordinated loan to international development company (no SME).Installation of solar panels on top of office buildings for EUR 800,000 by a private undertaking with EUR 200,000 grant funding.Building a public park for EUR 3 million public expenditure.Integrating 1-4 in a single development project with EUR 61.8 million volume in a public private partnership without public grants but with favorable investment conditions for the private investor.

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